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  • 7/28/2019 Relatrio Orient Express


    Orient-Express Hotels Ltd2010 Annual Repor

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    21New York, New York

    The Inn at Perry CabinSt Michaels, Maryland

    Keswick HallCharlottesville, Virginia

    Charleston PlaceCharleston, South Carolina

    La SamannaSt Martin, French West Indies

    Maroma Resort and SpaRiviera Maya, Mexico

    Miraflores Park HotelLima, Peru

    Machu Picchu Sanctuary LodgeMachu Picchu, Peru

    Hiram Bingham(Cuzco-Machu Picchu)

    PeruRail, Peru

    Hotel MonasterioCuzco, Peru

    Las Casitas del ColcaColca Canyon, Peru

    Hotel Rio SagradoUrubamba, Sacred Valley, Peru

    Casa de Sierra NevadaSan Miguel de Allende, Mexico

    El EncantoSanta Barbara,




    Trains & Cruises


    The WestcliffJohannesburgSouth Africa

    Hotel Splendido& Splendido MarePortofino, Italy

    Htel de la CitCarcassonne, France

    Hotel Cipriani &Palazzo VendraminVenice, Italy

    Villa San MicheleFlorence, Italy

    Hotel CarusoBelvedereRavello, Italy

    Villa SantAndreaSicily, Italy

    Grand Hotel TimeoSicily, Italy

    Northern BelleUnited Kingdom

    Venice Simplon-Orient-ExpressLondon-Paris-Venice

    Afloat in FranceCanals of Burgundy &

    Languedoc, France

    Reids PalaceMadeira, Portugal

    Le Manoir auxQuatSaisons

    Oxfordshire, England

    Bora Bora LagoonResort & Spa

    Tahiti, French Polynesia

    Road To MandalayIrrawaddy River, Burma

    La Rsidence Phou VaoLuang Prabang, Laos

    The Governors ResidenceRangoon, Burma

    La Rsidence dAngkorSiem Reap, Cambodia

    NapasaiKoh Samui, Thailand

    The Observatory HotelSydney, New South Wales

    Eastern & OrientalExpress

    Southeast Asia

    Jimbaran Puri BaliBali, Indonesia

    bud Hanging GardensBali, Indonesia





    Eagle Island CampKhwai River LodgeSavute Elephant CampOkavango Delta,Botswana

    Mount Nelson Hotel

    Cape Town, South Africa

    The Royal ScotsmanEdinburgh, Scotland

    British PullmanUnited Kingdom

    Orient-Express Hotels Ltd.02

    Copacabana PalaceRio de Janeiro, Brazil

    Hotel das CataratasIguassu Falls, Brazil

    Hotel RitzMadrid, Spain

    La ResidenciaDei, Mallorca, Spain

    Grand Hotel EuropeSt Petersburg, Russia

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    Orient-Express Hotels Ltd. 03

    Contents Introduction

    41 are hotels ranging across six continents, including

    distinctive properties such as Hotel Cipriani in Venice,

    Grand Hotel Europe in St Petersburg, Hotel Ritz in Madrid,Mount Nelson Hotel in Cape Town and Copacabana

    Palace in Rio de Janeiro. Six tourist trains include the

    legendary Venice Simplon-Orient-Express in Europe,

    Eastern & Oriental Express in Southeast Asia and The

    Royal Scotsman. We also part-own and manage

    PeruRail in Peru, which operates the Cuzco-Machu

    Picchu train services used by most travellers to Peru,

    including the first class Hiram Bingham train

    experience. The m.v. Road To Mandalay offers luxury

    cruises on the Irrawaddy River in Burma and Afloat in

    France operates indulgent pniche-htels (barges) on

    the inland waterways of France. We also own and run

    the iconic 21 Club restaurant in New York City.

    Orient-Express will continue to acquire additionaldistinctive luxury properties and travel experiences

    throughout the world when conditions are right. We are

    actively seeking management contracts for similar

    assets in key destinations and major gateway cities.

    We look for properties that are special and unique as

    well as luxurious, and avoid the use of a chain brand.Instead, the local hotel brand is promoted and the

    Orient-Express brand used as an assurance of quality,

    since we believe that discriminating travellers seek

    distinctive individual hotels in preference to a chain.

    There are some opportunities for the development of

    private residences in the portfolio as certain hotels have

    adjacent vacant land suitable for the construction of

    luxury vacation villas. Our overriding commitment to

    providing the highest quality of service, products and

    amenities in our hotels is also a standard in our real

    estate developments. Current projects include La

    Samanna Villas, adjacent to our hotel on the French

    side of St. Martin, West Indies, and an apartment and

    marina development, Porto Cupecoy, on the Dutchside. There is also residential development around the

    golf course on the estate of our hotel, Keswick Hall,

    near Charlottesville, Virginia.

    Orient-Express Hotels Ltd. is a hotel and travel company focused

    on the luxury sector of the leisure market with many iconic and

    highly acclaimed properties, offering an elite collection of travel

    experiences. We own or part-own and manage 50 businesses

    operating in 24 countries.

    03Company profile

    03Financial highlights

    04Chairmans message

    06Presidents overviewof performance

    12Financial review

    46Shareholder and

    investor information


    The world of Orient-Express

    The world of Orient-Express has 50

    hotels, trains, cruises and restaurants

    operating in 24 countries, ranging

    across six continents.

    Financial Summary2010 2009

    $000* $000*

    Revenue 571,942 450,910

    Segment EBITDA (Note 1) 37,569 69,547

    Net loss from continuing operations (63,049) (20,124)

    Net loss per common share from continuing operations $(0.69) $(0.30)

    Net loss per common share $(0.68) $(1.01)

    Weighted average number of shares outstanding (million) 91.5 68.0

    *Except per share amountsand number of shares

    Front cover

    Venice Simplon-Orient-Express

    A recent television documentary by

    David Suchet, the Poirot actor, was

    broadcast in nine countries during

    2010. The unprecedented level of

    interest generated demonstrates the

    enduring appeal of this mostauthentic of experiences.

    Note 1: See Note 20 to the Financial Statements forreconciliation to Net loss from continuing operations

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    Orient-Express Hotels Ltd.04

    Hotel Monasterio

    The Companys employees in Peru

    worked tirelessly to overcome the

    effects of adverse weather conditions

    in record time. Hotel Monasterio in

    Cuzco is a national monument dating

    from 1592. Work is underway on the

    restoration of a second property in

    the city, scheduled to open in 2012.

    Chairmans message

    April 1, 2011

    Dear Fellow Shareholder,

    I am delighted to be writing this message as our Company and our industry turns an

    important corner, and the world appears to be heading for a period of sustained growth,

    albeit at a varying pace across the globe.Double digit RevPAR improvement, the successful completion of the acquisition of two

    historic properties in Sicily, Italy, andthe refurbishment of Hotel das Cataratas in Brazil were

    some of the highlights of 2010.However the year as a whole was not without its challenges.

    January saw unprecedented rainfall in Peru which led to catastrophic flooding in the

    Machu Picchu region. PeruRail, the leading rail operator in Peru which we own in a joint

    venture, was forced to suspend operations on the famous CuzcoMachu Picchu route

    for over three months as the railroad was destroyed in almost 100 separate locations.

    Amazingly, the workers of Ferrocarril Transandino, Orient-Express railroad infrastructure

    company, rehabilitated the tracks at an unbelievable pace, and the iconic ruins at Machu

    Picchu were again open to the public by April a great credit to our employees in Peru.

    In February, flooding in Madeira cost 41 lives and all but forced Reids Palace to close

    for a few weeks due to island access issues. Reids Palace became the focus of the

    recovery, as management opened its doors to local people, true social responsibility.

    These weather events were followed by the Icelandic ash cloud, which closed downthe skies over Europe, and civil unrest on the streets in Bangkok. All in all a challenging

    start to 2010.

    During this time, Orient-Express continued to stick to its tried and tested principles,

    with quality of service at the fore. As luxury came back into mode, our properties

    began to thrive. June was an exciting month; the soccer World Cup came to Africa for

    the first time. Our two properties entertained guests from all over the world and a

    successful tournament truly put South Africa in the minds of many.

    The year closed with one final concerning event, signs of civil unrest in North Africa,

    which finally resulted in demonstrations in January 2011. We watch events in the MENA

    region diligently, and although we have no presence there, the possible impact of violence

    is one we hope can be avoided. As I write, we are witnessing the aftermath of the tragic

    earthquake in Japan, and our thoughts are with those affected.

    Our year was a challenging yet rewarding one. Many of our properties around the

    world were fted with prestigious awards and, again, our employees shone asstandards continue to exceed customer expectation. The Company made considerable

    strides to improve its balance sheet and reduce its debt position some thanks to the

    support of our long-term shareholders, to whom I hereby express my gratitude.

    After serving four years as your Chairman and eleven years on the Board of Orient-

    Express Hotels Ltd., it is time for me to step down at the 2011 annual general meeting

    and hand the Chairmanship over to Robert (Bob) Lovejoy. Bob and I joined the Board

    shortly before Orient-Express went public in August 2000 and, having helped navigate

    the Company through some tough times during the recent economic crisis, I have

    every confidence in Bobs talents as we look towards 2011 and beyond.

    Finally, my fellow Board member, James B. Sherwood, founder of Orient-Express

    back in the 1970s, also stands down at the 2011 annual general meeting, and I am

    sure all shareholders will join me in thanking him for his incredible contribution to

    Orient-Express and indeed the entire luxury travel industry.

    James B. Hurlock


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    Orient-Express Hotels Ltd. 05

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    Orient-Express Hotels Ltd.06

    Presidents Overview of Performance

    I can only echo the words of my Chairman - 2010 was

    indeed challenging. World events distorted a year in

    which our Company actually showed good same store

    growth, with RevPAR up 11% in local currency. Our Rest

    of World properties led the way, with Copacabana

    Palace in Rio de Janeiro up 29%, our properties in

    Southern Africa, helped by the soccer World Cup, up17%, and our Asian portfolio up 18%.

    In North America, Charleston Place in Charleston S.C.,

    the Companys largest property with 435 keys, grew

    RevPAR 20%, with the region up 9%. External concerns

    about drug related crime in Mexico hit the results at

    Maroma Resort and Spa and Casa de Sierra Nevada,

    and this trend unfortunately continues into 2011.

    In Europe, the year was mixed. A slow start, not helped

    by the Icelandic ash cloud, was boosted by a strong end

    to the year in our Italian properties. In particular we saw

    strong RevPAR growth at Hotel Caruso in Ravello and

    at Le Manoir aux QuatSaisons in Oxfordshire, but we

    experienced a poor year at Reids Palace in Madeira, as

    the island experienced wide-spread flooding in February.

    Trains and Cruises experienced 9% revenue growth

    (excluding PeruRail) and is expected to outperform

    throughout 2011 a real sign that luxury is back!

    The year saw the Company make huge strides in

    strengthening its balance sheet, with net debt down

    $156 million to $571 million at December 31st. The

    refinancing of $374 million of debt, pushing maturities

    out between three to five years, means the Company

    can begin to look forward with confidence.

    Our results are predicated on clear underlying

    principles. We own and operate great properties in

    locations unsurpassed across the globe. Our 8,400

    employees deliver the highest level of service

    consistently, driving the top line. In 2008 and 2009, this

    became of prime importance as the investment tap

    was firmly closed.In 2010 we generated operating cash flows to enable

    that tap to be slowly turned back on, with key investments

    in Venice at Hotel Cipriani, in Brazil at Hotel das

    Cataratas, and in Cape Town at the Mount Nelson

    Hotel, seeing each of these iconic hotels upgraded.

    A similar amount of capital expenditure in 2011 will be

    spent to upgrade La Samanna in the Caribbean,

    Maroma Resort and Spa in Mexico, Copacabana

    Palace in Brazil and The Governors Residence in

    Burma. By far the most exciting project, and the

    culmination of ten years work in obtaining the permits,

    will be the addition of five suites on the top floor of

    Hotel Splendido in Portofino. These 1,000 square

    foot suites are expected to generate a payback within

    three years and push the Splendidos EBITDA into

    record territory.

    In February the English Court of Appeal reaffirmed

    Orient-Express exclusive right to use the Cipriani trade

    mark for hotel and restaurant services in Europe.

    In 2011, we will explore opportunities to roll out the

    Cipriani mark, as well as the 21 brand in North

    America, and an exciting proposal to expand our

    partnership with Raymond Blanc globally.

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    Orient-Express Hotels Ltd. 07

    La Residencia

    La Residencia sits in a 32-acre estate

    at Dei on Mallorcas northern coast

    The hotel this year began work with a

    local cooperative to restore the

    olive groves in the estate to begin

    production of its own olive oil. A field

    of almond trees and a Mediterranean

    herb garden to supply the kitchens

    have also been planted.

    Recognition is important in the luxury segment, and

    awards such as 1st, 2nd and 4th best leisure hotels in

    Europe from Cond Nast Traveller (UK) and 1st small

    mainland US resort from Cond Nast Traveler (US) are

    significant both for our employees and guests alike. Pride

    in ones work drives results. Initiatives such as the stock

    appreciation rights plan (enabling all employees toparticipate in our share price increase) and local incentive

    schemes are key to this. I was delighted to be joined by

    five recipients of our Employee of the Year award at the

    New York Stock Exchange in August to ring the closing bell

    on the tenth anniversary of our listing, a proud day for all.

    Our commitment to environmental sustainability and

    social responsibility is real. In 2010, a reforestation

    scheme was initiated in the devastated region around

    Machu Picchu to plant one million trees, of which

    230,000 are already in place. Charleston Places Feed

    the Need initiative to help feed the hungry and alleviate

    strain on emergency food providers fed approximately

    28,000 people, saving food banks an estimated $84,000.

    Our hotels were recognized for their environmental

    projects. In Virginia, Keswick Halls golf course was

    designated a Certified Audubon Cooperative Sanctuary

    for work done to preserve its wildlife habitats, while

    Maroma Resort and Spa received Mesoamerican Reef

    Tourism Initiatives Sustainable Tourism certification for its

    commitment to the protection of the biodiversity and

    ecosystem of the Riviera Maya. In January 2011,

    Hotel das Cataratas attained ISO 14001 Sustainability

    and SA 8000 Social Responsibility certification.

    As I write, the outlook for 2011 looks bright. RevPARs

    and EBITDA at many properties are approaching their

    previous peak with signs that other properties are turning

    the corner. 2011 should be the year where Europe sees the

    most sustained recovery, driven by the North American

    traveller. Our Trains and Cruises business again should

    be a star performer.Keeping with our core principles and remembering

    we are curators of unique experiences will see Orient-

    Express thrive throughout 2011 and beyond.

    In closing, I would like to put on record my thanks to

    James Hurlock, our outgoing Chairman, with whom it

    has been a pleasure to work since my appointment

    as CEO in 2007, and to James Sherwood, founder

    of Orient-Express, a visionary and pioneer in the

    hospitality industry. I wish them well in retirement. As we

    enter an exciting new chapter in the Orient-Express

    story, I look forward to welcoming Bob Lovejoy to the

    Chairman role, and to forming a successful partnership

    as we aim for sustained growth.

    Paul M. White

    President and Chief Executive Officer

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    Orient-Express Hotels Ltd.08

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    Orient-Express Hotels Ltd. 09

    Left top

    Le Manoir aux QuatSaisons

    The new Blanc de Blanc Suite at

    Le Manoir aux QuatSaisons, where

    each of the 32 keys is individuallydesigned. The hotel in Oxfordshire,

    UK is famed for its two Michelin-star


    Left bottom

    Grand Hotel Europe

    The newly created Pavarotti Suite

    is one of ten historic suites named

    for celebrated guests at this

    St Petersburg hotel.

    Right top

    Copacabana Palace

    Bar do Copa at Rios Copacabana

    Palace has proved a hit with both

    locals and visitors. Positioned near

    the hotels stunning pool, its fiber

    optic decor, laid-back music and

    great cocktails attract a lively and

    glamorous crowd.

    Right bottom

    Mount Nelson Hotel

    Firstin a program of refurbishments at

    Cape Towns celebrated hotel is the

    renovation of 32 keys and the launch

    of Planet Restaurant. Investment in a

    further 60 keys and public areas of the

    hotel is currently underway.

    Owned Hotels: Europe2010 2009


    EBITDA ($ millions) 37.4 38.6

    Same RevPAR (in US$) 317 319

    storeRevPAR change

    (in US$) (1%)

    RevPAR change

    (in local currency) 2%

    Owned Hotels: North America2010 2009


    EBITDA ($ millions) 15.0 14.6

    Same RevPAR (in US$) 208 189

    storeRevPAR change

    (in US$) 10%

    RevPAR change

    (in local currency) 9%

    Owned Hotels: Rest of world2010 2009


    EBITDA ($ millions) 33.4 25.5

    Same RevPAR (in US$) 188 147

    storeRevPAR change

    (in US$) 28%

    RevPAR change

    (in local currency) 22%

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    Hotel Splendido

    Awarded Number One Overseas

    Leisure Hotel by Cond Nast

    Traveller (UK). In 2011 five 1,000

    square foot suites will be added to

    the top floor of the hotel.

    Keswick Hall

    Rated the USA's Top Small Resort

    in the Cond Nast Traveler (USA)

    2010 Readers' Travel Awards.

    Additionally Keswick Halls golf

    course has been designated a

    Certified Audubon Cooperative

    Sanctuary for work done to

    preserve its wildlife habitats.

    Orient-Express Hotels Ltd.10

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    Orient-Express Hotels Ltd. 1

    Directors and Officers

    James B. Hurlock Non-executive Chairman of the Board.

    Partner (retired) of White & Case LLP (attorneys). Mr Hurlock

    was Chairman of the Management Committeeof White & Case

    LLP (1980-2000), overseeing the firms worldwide operations.

    Georg R. Rafael Non-executive Vice Chairman of the

    Board. Managing Director of Rafael Group S.A.M., a holdingcompany for hotel investments and the development of

    international deluxe hotel properties. Previously Vice

    Chairman - Executive Committee of Mandarin Oriental Hotels,

    having sold Rafael Hotels Ltd, a deluxe hotel company he

    established in 1986, to Mandarin Oriental in 2000.

    James B. Sherwood Founder and Director. Formerly

    Chairman of the Board. Mr Sherwood is the owner of the

    Capannelle wine estate in Tuscany, Italy and serves

    on the boards of a number of charitable, cultural and

    educational institutions.

    Mitchell C. Hochberg Managing Principal of Madden

    Real Estate Ventures since March 2007. Previously Presidentand Chief Operating Officer of Ian Schrager Company.

    Founded and ran Spectrum Communities, developers of

    luxury communities in the north eastern United States.

    Mr Hochberg is a lawyer and certified public accountant.

    John D. Campbell Senior Counsel (retired) of Appleby

    (attorneys). Mr Campbell is also Chairman of the Board of

    HSBC Bank of Bermuda Ltd and a Director of Argus Group

    Holdings Ltd.

    Prudence M. Leith, CBE, DL Noted restaurateur,

    television broadcaster and author. Previously founder, owneand Managing Director of Leiths Group (restaurants, chef

    school, contract events and party catering) which was sold

    to Accor in 1995. Ms Leith has served in the past as a non-

    executive Director of several British public companies.

    J. Robert Lovejoy Managing Member of J.R. Lovejoy &

    Co. LLC (financial and strategic advisory firm). Previous

    positions in finance have been with Coatue Management

    LLC, Groton Partners LLC and Ripplewood Holdings LLC.

    Served as Managing Director and General Partner of Lazar

    Frres (investment bankers) for over 15 years.

    Paul M. White President and Chief Executive Officer, since

    August 2007. Elected to the Board in June 2008, he hashad a 25 year career in the lodging industry, 20 of which

    have been at Orient-Express Hotels. He has been a hotel

    General Manager, a Financial Controller and a Regional

    Vice President with profit and loss responsibility for the

    Companys operations across a third of the globe.

    Previously Chief Financial Officer of the Company. Joined

    from Forte Hotels in 1991.

    Raymond Blanc, OBE Vice President. Founder and chef

    patron of Le Manoir aux QuatSaisons since 1984 which

    Orient-Express bought in 2002. Having been in the restaurant

    business since 1969, he started his career in France before

    coming to England in 1972, opening his first restaurant in

    1977. Many top-rated chefs have trained under M. Blanc, a

    prolific food writer and television presenter.

    Filip Boyen Vice President and Chief Operating Officer.

    Joined the Company in 1998. Formerly Vice President

    Operations. Served as Vice President Africa, Latin America

    and Australasia and Managing Director of Orient-Express

    Hotels, Peru, responsible for the running of the Companys

    hotels and railway transportation business, PeruRail, there.

    Philip Calvert Vice President, Legal and Commercial

    Affairs. An English barrister and New York lawyer. Joined the

    Company in October 2008 as Director of Legal Services.

    Previously with Sea Containers since 1983 during the period

    of its shareholding in the Company.

    Roger V. Collins Vice President, Design and Technical

    Services. An engineer his entire career, he has worked in the

    hotel industry since 1979 with Grand Metropolitan Hotels,

    Courage Inns and Taverns, and Trusthouse Forte Hotels,

    joining the Company in 1991.

    Philip A. Gesue Vice President, Real Estate. Joined

    the company in 2009 as Director of Global Real Estate.

    Formerly with real estate investor Time Equities and

    Biba Hotels. Background in real estate finance, acquisitions

    and development.

    Messrs Campbell,Hurlock and Lovejoy are

    members of the AuditCommittee and they,together with GeorgRafael and PrudenceLeith, are members ofthe Compensation

    and Nominating &Governance Committees


    Officers Edwin S. Hetherington Vice President, General Counseland Secretary having joined Orient-Express Hotels in 1980.

    Previously also an officer of Sea Containers Ltd. during the

    period of its shareholding in the Company. A New York lawyer

    Martin OGrady Vice President and Chief Financial Office

    Joined Orient-Express Hotels in February 2008 from Orion

    Capital Managers, a European real estate investment firm,

    where he was Chief Financial Officer. Prior experience with

    Mandarin Oriental Hotels Group in a senior financial position

    Roy Paul Vice President and Chief Development Officer.

    Joined Orient-Express in February 2011. Previously a Partne

    in Cedar Capital (hotel asset investment and management)

    and a Senior Vice President of Four Seasons Hotels for 20

    years leading its hotel and resort development function.

    Maurizio SaccaniVice President, Italy. Started his career

    with Orient-Express Hotels at Hotel Cipriani and then joined the

    Venice Simplon-Orient-Express. Starting with Villa San Michelein 1985, he has spearheaded the growth and operationsof

    mostof theCompanyslandmark Italianhotels.

    David C. Williams Vice President, Sales and Marketing.

    Joined the Company in 1981 as Sales and Reservations

    Manager and then served as Commercial Director

    responsible for strategic marketing developments and

    business initiatives in the Americas, Europe and Asia

    Pacific. Previously with Carlson Marketing Group.


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    Orient-Express Hotels Ltd.12

    Financial Review

    13Report of IndependentRegistered PublicAccounting Firm

    14ConsolidatedBalance Sheets

    15Statements ofConsolidated Operations

    16Statements ofConsolidated Cash Flows

    17Statements of Changes inConsolidated Total Equity

    18Notes to ConsolidatedFinancial Statements

    42Summary ofQuarterly Earnings

    43Five Year Performance

    44Price Range of CommonShares and Dividends

    44Summary of Earningsby Operating Unitand Region

    45Summary ofOperating Informationfor Owned Hotels

    45Corporate Governance


    Shareholder andInvestor Information


    This report contains, in addition to historical information,

    forward-looking statements that involve risks and

    uncertainties. These include statements regarding

    earnings outlook, investment plans, debt reduction and

    refinancings, asset sales and similar matters that are

    not historical facts. These statements are based on

    managements current expectations and are subject to

    a number of uncertainties and risks that could cause

    actual results to differ materially from those described in

    the forward-looking statements. Factors that may cause

    a difference include, but are not limited to, thosementioned in the report, unknown effects on the travel

    and leisure markets of terrorist activity and any police or

    military response, varying customer demand and

    competitive considerations, failure to realize hotel

    bookings and reservations and planned property

    development sales as actual revenue, inability to

    sustain price increases or to reduce costs, rising fuel

    costs adversely impacting customer travel and the

    Companys operating costs, fluctuations in interest rates

    and currency values, uncertainty of negotiating and

    completing proposed asset sales, debt refinancings,

    capital expenditures and acquisitions, inability to reduce

    funded debt as planned or to agree bank loan agreement

    waivers or amendments, adequate sources of capital

    and acceptability of finance terms, possible loss or

    amendment of planning permits and delays in

    construction schedules for expansion or development

    projects, delays in reopening properties closed for

    repair or refurbishment and possible cost overruns,

    shifting patterns of tourism and business travel and

    seasonality of demand, adverse local weather

    conditions, changing global and regional economic

    conditions in many parts of the world and weakness in

    financial markets, legislative, regulatory and political

    developments, and possible new challenges to the

    Companys corporate governance structure. Further

    information regarding these and other factors is

    included in the filings by the Company with the U.S.

    Securities and Exchange Commission.

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    Orient-Express Hotels Ltd. 13

    Report of Independent Registered Public Accounting Firm

    Board of Directors and Shareholders

    Orient-Express Hotels Ltd.

    Hamilton, Bermuda

    We have audited the accompanying consolidated

    balance sheets of Orient-Express Hotels Ltd. and

    subsidiaries (the Company) as of December 31, 2010

    and 2009, and the related consolidated statements of

    operations, changes in total equity, and cash flows for

    each of the three years in the period ended December

    31, 2010. These financial statements are the responsibilityof the Companys management. Our responsibility is to

    express an opinion on these financial statements based

    on our audits.

    We conducted our audits in accordance with the

    standards of the Public Company Accounting Oversight

    Board (United States). Those standards require that we

    plan and perform the audit to obtain reasonable

    assurance about whether the financial statements are

    free of material misstatement. An audit includes

    examining, on a test basis, evidence supporting the

    amounts and disclosures in the financial statements.

    An audit also includes assessing the accounting

    principles used and significant estimates made by

    management, as well as evaluating the overall financial

    statement presentation. We believe that our audits

    provide a reasonable basis for our opinion.

    In our opinion, such consolidated financial

    statements present fairly, in all material respects, the

    financial position of Orient-Express Hotels Ltd. and

    subsidiaries as of December 31, 2010 and 2009, and

    the results of their operations and their cash flows for

    each of the three years in the period ended December

    31, 2010, in conformity with accounting principles

    generally accepted in the United States of America.

    We have also audited, in accordance with thestandards of the Public Company Accounting Oversight

    Board (United States), the Companys internal control

    over financial reporting as of December 31, 2010,

    based on the criteria established in Internal Control-

    Integrated Framework issued by the Committee of

    Sponsoring Organizations of the Treadway Commission

    and our report dated February 25, 2011 expressed an

    unqualified opinion on the Companys internal control

    over financial reporting.

    Deloitte LLP

    London, England

    February 25, 2011

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    Orient-Express Hotels Ltd.14

    Consolidated Balance SheetsYear ended December 31, 2010 2009

    $000 $000


    Cash and cash equivalents 150,344 71,674

    Restricted cash 8,429 19,894

    Accounts receivable, net of allowances of $474 and $388 51,386 59,968

    Due from unconsolidated companies 19,643 19,385Prepaid expenses and other 23,663 22,276

    Inventories 44,245 43,678

    Assets of discontinued operations held for sale 33,945 64,358

    Real estate assets 68,111 120,288

    Total current assets 399,766 421,521

    Property, plant and equipment, net of accumulated depreciation of $277,209 and $246,912 1,268,822 1,191,531

    Property, plant and equipment of consolidated variable interest entities 188,502 192,682

    Investments in unconsolidated companies 60,428 58,432

    Goodwill 177,498 149,180

    Other intangible assets 18,987 18,936

    Other assets 23,711 40,408

    2,137,714 2,072,690

    Liabilities and Equity

    Working capital facilities 1,174 6,666

    Accounts payable 25,448 23,240

    Accrued liabilities 71,436 73,875

    Deferred revenue 28,963 68,784

    Liabilities of discontinued operations held for sale 2,910 14,646

    Current portion of long-term debt and obligations under capital leases 124,805 173,223

    Current portion of long-term debt of consolidated variable interest entities 1,775 165

    Total current liabilities 256,511 360,599

    Long-term debt and obligations under capital leases 511,336 559,042

    Long-term debt of consolidated variable interest entities 90,529 79,304

    Liability for pension benefit 5,617 7,402

    Other liabilities 30,095 19,742

    Deferred income taxes 100,730 94,872

    Deferred income taxes of consolidated variable interest entities 61,835 64,100

    Liability for uncertain tax positions 8,194 7,151

    1,064,847 1,192,212

    Commitments and contingencies


    Shareholders' equity:

    Preferred shares $0.01 par value (30,000,000 shares authorized, issued nil) - -

    Class A common shares $0.01 par value (120,000,000 shares authorized):

    Issued 102,373,241 (2009 76,843,053) 1,023 769

    Class B common shares $0.01 par value (120,000,000 shares authorized):Issued 18,044,478 (2009 18,044,478) 181 181

    Additional paid-in capital 968,492 714,980

    Retained earnings 140,015 202,774

    Accumulated other comprehensive loss (38,585) (39,814)

    Less: reduction due to class B common shares owned by a subsidiary 18,044,478 (181) (181)

    Total shareholders equity 1,070,945 878,709

    Non-controlling interests 1,922 1,769

    Total equity 1,072,867 880,478

    2,137,714 2,072,690

    See notes to consolidated financial statements.

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    Orient-Express Hotels Ltd. 15

    Statements of Consolidated OperationsYear ended December 31, 2010 2009 2008

    $000 $000 $000

    Revenue 571,942 450,910 494,676


    Depreciation and amortization 45,483 39,950 33,931

    Cost of services 309,768 220,114 225,388Selling, general and administrative 190,594 164,827 177,088

    Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment 38,497 6,500 5,551

    Total expenses 584,342 431,391 441,958

    Gain on disposal of fixed assets - 1,385 -

    (Losses)/earnings from operations (12,400) 20,904 52,718

    Impairment of investment in unconsolidated company - - (22,992

    (Losses)/earnings before net finance costs, provision for income taxes and earnings from unconsolidated companies (12,400) 20,904 29,726

    Interest expense, net (33,839) (31,068) (46,874

    Foreign currency, net 5,686 (1,067) 4,945

    Net finance costs (28,153) (32,135) (41,929

    Losses before provision for income taxes and earnings from unconsolidated companies, net of tax (40,553) (11,231) (12,203

    (Provision for)/benefit from income taxes (24,754) (13,076) 1,832

    Losses before earnings from unconsolidated companies (65,307) (24,307) (10,371

    Earnings from unconsolidated companies, net of tax of $2,228, $4,510 and $6,986 2,258 4,183 16,771

    Net (losses)/earnings from continuing operations (63,049) (20,124) 6,400

    Earnings/(losses) from discontinued operations, net of tax provision/(credit) of $(1,684), $(10,004) and $5,620 ,469 (48,613) (32,754

    Net losses (62,580) (68,737) (26,354

    Net earnings attributable to non-controlling interests (179) (60) (197

    Net losses attributable to Orient-Express Hotels Ltd. (62,759) (68,797) (26,551

    Basic (losses)/earnings per share: $ $ $

    Net (losses)/earnings from continuing operations (0.69) (0.30) 0.15

    Net earnings/(losses) from discontinued operations 0.01 (0.71) (0.76

    Net losses (0.68) (1.01) (0.61

    Diluted (losses)/earnings per share:

    Net (losses)/earnings from continuing operations (0.69) (0.30) 0.15

    Net earnings/(losses) from discontinued operations 0.01 (0.71) (0.76

    Net losses (0.68) (1.01) (0.61

    Dividends per share - - 0.10

    See notes to consolidated financial statements.

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    Orient-Express Hotels Ltd.16

    Statements of Consolidated Cash FlowsYear ended December 31, 2010 2009 2008

    $000 $000 $000

    Cash flows from operating activities:

    Net losses (62,580) (68,737) (26,354)

    Less: Earnings/(losses) from discontinued operations, net of tax 469 (48,613) (32,754)

    Net (losses)/earnings from continuing operations (63,049) (20,124) 6,400

    Adjustment to reconcile net (losses)/earnings to net cash provided by/(used in) operating activities:Depreciation and amortization 45,483 39,950 33,931

    Amortization of finance costs 4,785 3,430 3,103

    Impairment of real estate assets, goodwill, other intangible assets, and property, plant and equipment 38,497 6,500 5,551

    Undistributed earnings of unconsolidated companies (4,254) (9,212) (11,690)

    Share-based compensation 5,965 4,121 2,800

    Change in deferred income tax 3,652 11,720 (5,184)

    Gains/(losses) from the disposals of property, plant and equipment (328) 3,710 382

    Increase/(decrease) in provisions for uncertain tax positions 1,153 (4,202) (11,756)

    Other non-cash items (3,425) 2,651 (136)

    Change in assets and liabilities, net of effects from acquisition of subsidiaries:

    Decrease/(increase) in receivables, prepaid expenses and other 2,117 (6,498) (8,857)

    Decrease/(increase) in due from unconsolidated companies 2,579 (9,709) 20,343

    (Increase)/decrease in inventories (13) (129) 51

    Decrease/(increase) in real estate assets 50,197 (36,305) (57,289)

    (Decrease)/increase in payables, accrued liabilities, and deferred revenue (42,102) 13,276 28,813

    Dividends received from unconsolidated companies - 1,064 3,840

    Net cash provided by operating activities from continuing operations 41,257 243 10,302

    Net cash (used in)/provided by operating activities from discontinued operations (7,289) (16,769) 14,841

    Net cash provided by/(used in) operating activities 33,968 (16,526) 25,143

    Cash flows from investing activities:

    Capital expenditures (59,866) (71,965) (107,623)

    Acquisitions and investments, net of cash acquired (46,285) (86) (2,996)

    Increase in restricted cash (2,815) (7,477) (9,079)

    Decrease in restricted cash 13,838 807 -

    Proceeds from sale of fixed assets 2,110 5,900 158

    Net cash used in investing activities from continuing operations (93,018) (72,821) (119,540)

    Net cash provided by/(used in) investing activities from discontinued operations 20,199 62,569 (5,353)

    Net cash used in investing activities (72,819) (10,252) (124,893)

    Cash flows from financing activities:

    Proceeds from working capital facilities and redrawable loans 1,174 6,253 72,120

    Payments on working capital facilities and redrawable loans (6,666) (47,518) (15,695)

    Issuance of common shares 261,878 148,781 55,185

    Issuance costs of common shares (13,826) (7,880) (2,671)

    Stock options exercised 1 15 192

    Issuance of long-term debt 381,158 42,244 5,738

    Principal payments of long-term debt (500,197) (49,238) (33,936)

    Payment of common share dividends - - (4,247)

    Net cash provided by financing activities from continuing operations 123,522 92,657 76,686Net cash (used in)/provided by financing activities from discontinued operations (6,757) (60,593) 54

    Net cash provided by financing activities 116,765 32,064 76,740

    Effect of exchange rate changes on cash and cash equivalents (54) 1,799 (2,031)

    Net increase/(decrease) in cash and cash equivalents 77,860 7,085 (25,041)

    Cash and cash equivalents at beginning of year

    (includes $1,295 (2010), $1,676 (2009), $4,310 (2008) of discontinued operations cash) 72,969 65,884 90,925

    Cash and cash equivalents at end of year

    (includes $485 (2010), $1,295 (2009), $1,676 (2008) of discontinued operations cash) 150,829 72,969 65,884

    See notes to consolidated financial statements.

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    Balance, January 1, 2008 - 424 181 515,307 302,369 30,431 (181) 1,754 850,28

    Issuance of class A common shares

    in direct offering, net of issuance costs - 86 - 52,428 - - - - 52,51

    Share-based compensation - - - 2,800 - - - - 2,80

    Stock options exercised - - - 192 - - - - 19

    Dividends on common shares - - - - (4,247) - - - (4,24

    Comprehensive loss:

    Net loss on common shares - - - - (26,551) - - (26,551) ,197 (26,35

    Other comprehensive loss - - - - - (90,641) - (90,641) ,8 (90,63


    Dividends to non-controlling interest - - - - - - - ,(388) (388

    Balance, December 31, 2008 - 510 181 570,727 271,571 (60,210) (181) 1,571 784,16

    Issuance of class A common shares

    in public offering, net of issuance costs - 259 - 140,642 - - - - 140,90

    Share-based compensation - - - 4,121 - - - - 4,12

    Stock options exercised - - - 15 - - - - 1

    Comprehensive loss:

    Net loss on common shares - - - - (68,797) - - (68,797) ,60 (68,73

    Other comprehensive income - - - - - 20,396 - 20,396 (47) 20,34


    Acquisition of non-controlling interest - - - (525) - - - ,185 (34

    Balance, December 31, 2009 - 769 181 714,980 202,774 (39,814) (181) 1,769 880,47

    Issuance of class A common sharesin public offering, net of issuance costs - 253 - 247,799 - - - - 248,05

    Share-based compensation - - - 5,713 - - - - 5,71

    Stock options exercised - 1 - - - - - -

    Comprehensive loss:

    Net loss on common shares - - - - (62,759) - - (62,759) ,179 (62,58

    Other comprehensive income - - - - - 1,229 - 1,229 (26) 1,20


    Balance, December 31, 2010 - 1,023 181 968,492 140,015 (38,585) (181) 1,922 1,072,86

    See notes to consolidated financial statements.

    Orient-Express Hotels Ltd. 17

    Statements of Changes in Consolidated Total Equity

    PreferredShares at

    Par Value$000

    Class ACommonShares atPar Value


    Class BCommonShares atPar Value










    held by aSubsidiary









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    Orient-Express Hotels Ltd.18

    Notes to Consolidated Financial Statements

    1. Summary of significant accounting policiesand basis of presentation


    In this report Orient-Express Hotels Ltd. is referred to as the Company, and

    the Company and its subsidiaries are referred to collectively as OEH.

    At December 31, 2010, OEH owned or invested in 41 deluxe hotels and

    resorts located in the United States, Mexico, Caribbean, Europe, southern

    Africa, South America, Southeast Asia, Australia and South Pacific, a stand-

    alone restaurant in New York, six tourist trains in Europe, Southeast Asiaand Peru, and a river cruise ship in Burma and five canal boats in France.

    Basis of presentation

    The accompanying consolidated financial statements have been prepared

    in accordance with accounting principles generally accepted in the United

    States of America (U.S. GAAP) and reflect the results of operations,

    financial position and cash flows of the Company and all its majority-owned

    subsidiaries and variable interest entities in which OEH is the primary

    beneficiary. The consolidated financial statements have been prepared

    using the historical basis in the assets and liabilities and the historical

    results of operations directly attributable to OEH, and all intercompany

    accounts and transactions between the Company and its subsidiaries have

    been eliminated. Unconsolidated companies that are 20% to 50% owned

    are accounted for on an equity basis.

    FASB means Financial Accounting Standards Board. ASC means the

    Accounting Standards Codification of the FASB and ASU means an

    Accounting Standards Update of the FASB.

    Discontinued operations

    As reported in Note 2, OEH has presented certain activities within discontinued

    operations and, accordingly, the results of these activities have been reflected

    as discontinued operations for all periods presented. These activities are the

    hotels Bora Bora Lagoon Resort, Lapa Palace, Windsor Court, Lilianfels Blue

    Mountains and Htel de la Cit, the restaurant La Cabana, and two Internet-

    based companies, UK Ltd. and O.E. Interactive Ltd.

    Cash and cash equivalents

    Cash and cash equivalents include all cash balances and highly-liquid

    investments having original maturities of three months or less.

    Cash proceeds from sale of discontinued operations

    OEH has reclassified an item it had previously reported in the consolidated

    statements of cash flows for the periods presented. Proceeds from the

    sales of discontinued operations previously classified as investing activities

    from continuing operations have been presented in net cash flows from

    investing activities from discontinued operations. There has been no

    change to the total reported in net cash used in investing activities for the

    periods presented. The amounts of reclassification are $67,446,000 and

    $nil in 2009 and 2008, respectively. The reclassification has no impact on

    the statements of consolidated operations, consolidated balance sheets, orchanges in cash or cash equivalents reported for the years presented.

    Foreign currency

    The functional currency for each of the Companys foreign subsidiaries is the

    applicable local currency, except for properties in French West Indies, Brazil,

    Peru and one property in Mexico, where the functional currency is U.S. dollars.

    For foreign subsidiaries with a functional currency other than the U.S.

    dollar, income and expenses are translated into U.S. dollars, the reporting

    currency of the Company, at the average rates of exchange prevailing

    during the year. The assets and liabilities are translated into U.S. dollars at

    the rates of exchange on the balance sheet date and the related translation

    adjustments are included in accumulated other comprehensive income/(loss).

    Translation adjustments arising from intercompany financing of a subsidiary

    that is considered to be long-term in nature are accounted for and are also

    recorded in other comprehensive income/(loss) as they are considered part

    of the net investment in the subsidiary. Foreign currency transaction gains

    and losses are recognized in earnings as they occur.


    The preparation of financial statements in conformity with U.S. GAAP requires

    management to make estimates and assumptions that affect the reported

    amounts of assets and liabilities and the disclosure of contingent assets and

    liabilities at the date of the financial statements and the reported amounts of

    revenues and expenses during the reporting period. Estimates include,

    among others, the allowance for doubtful accounts, fair value of derivative

    instruments, estimates for determining the fair value of goodwill, long-lived

    and other intangible asset impairment, stock compensation, depreciation and

    amortization, carrying value of assets including intangible assets, employee

    benefits, taxes, and contingencies, projected revenue and costs for real

    estate revenue recognition. Actual results may differ from those estimates.

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    Orient-Express Hotels Ltd. 19

    Share-based compensation

    Share-based compensation expense for OEHs share-based payment

    awards is recognized in earnings on a straight-line basis over the requisite

    service period of the award. Compensation expense for performance share

    awards is recognized when it becomes probable that the performance

    criteria, if any, specified in the awards will be achieved. The total cost of a

    share-based payment award is reduced by estimated forfeitures expected

    to occur over the vesting period of the award. The grant date fair value of

    share-based payment awards is determined using the Black-Scholes

    model. See Note 16.

    Under its 2007 performance share plan and 2009 share award andincentive plan, the Company granted share-based payment awards with

    performance and market conditions to certain employees during the three

    years ended December 31, 2010. The fair value of the awards at the grant

    date is determined using the Monte Carlo simulation model. For awards

    with market conditions, the conditions are incorporated into the

    calculations, and the compensation value is not adjusted if the conditions

    are not met. For awards with performance conditions, compensation

    expense is recognized when it becomes probable that the performance

    criteria specified in the awards will be achieved and, accordingly, the

    compensation value is adjusted following the changes in the estimates of

    shares likely to vest based on the performance criteria.

    Revenue recognition

    Hotel and restaurant revenue is recognized when the rooms are occupied

    and the services are performed. Tourist train and cruise revenue is

    recognized upon commencement of the journey. Deferred revenue

    consisting of deposits paid in advance is recognized as revenue when the

    services are performed for hotels and restaurants and upon

    commencement of tourist train and cruise journeys. Revenue under

    management contracts is recognized based upon the attainment of certain

    financial results, primarily revenue and operating earnings, in each contract

    as defined.

    Real estate revenue recognition

    Revenue from real estate activities represents the proceeds from sales of

    undeveloped land and developed properties that OEH is holding for sale.

    Profit from sales of land and developed properties is recognized upon

    closing using the full accrual method of accounting, provided that all the

    requirements prescribed by the accounting guidance have been met.

    Revenue related to projects still under construction is recognized under the

    percentage-of-completion method where all criteria have been met. For

    sales that do not meet these criteria, revenue is deferred.

    During the three months ended December 31, 2008, the downturn in the

    global economy resulted in a slowdown in the condominium apartment

    sales at Porto Cupecoy compared to prior estimates. Accordingly, OEHs

    management concluded that it was no longer possible to estimate

    reasonably total project sales proceeds and profits and, therefore, revenue

    on the Porto Cupecoy project could no longer be recorded using the

    percentage-of-completion method.

    Effective October 1, 2008, revenue on the Porto Cupecoy project is

    accounted for as deposits until the criteria required by the accounting

    guidance are met. Under this method, all project-related costs are

    accumulated on the balance sheet as real estate assets held for sale and

    all customer sales proceeds are deferred on the balance sheet as deposits.

    Three months ended Year ended

    March 31 June 30 September 30 December 31 Tota

    2008 2008 2008 2008 Reversa

    $000 $000 $000 $000 $00

    Revenue 3,730 4,413 3,454 11,597 26,93

    Costs 3,868 4,247 3,101 11,216 21,69

    Gross profit (138) 166 353 381 5,24

    Revenue and costs previously recognized in OEHs consolidated

    statements of operations were reversed in the three months ended

    December 31, 2008, in the following amounts:

    Starting in 2010, OEH began to recognize revenues from Porto Cupecoy

    as the development was substantially completed and units were being

    occupied as sales were completed.

    Earnings from unconsolidated companies

    Earnings from unconsolidated companies include OEHs share of the net

    earnings of its equity investments as well as interest income related to loans

    and advances to the equity investees. This interest income specifically related

    to Hotel Ritz, Madrid in 2010 and Charleston Place Hotel in 2008, and

    amounted to $372,000 in 2010 (2009-$nil; 2008-$12,608,000). See Note 3.

    Marketing costs

    Marketing costs are expensed as incurred (except in the case of real estate

    projects), and are reported in selling, general and administrative expenses.

    Marketing costs include costs of advertising and other marketing activities.

    These costs were $33,480,000 in 2010 (2009-$28,923,000; 2008-$36,382,000)

    Interest expense, net

    Interest expense, net includes $1,315,000 of interest income in 2010 (2009-

    $1,172,000; 2008-$1,597,000). OEH capitalizes interest during the

    construction of assets. Interest expense, net excludes interest which has

    been capitalized in the amount of $3,130,000 in 2010 (2009-$5,275,000;


    Foreign currency, net

    Foreign currency, net consists entirely of foreign currency exchange

    transaction gain of $5,686,000 in 2010 (2009 - loss of $1,067,000;

    2008 - gain of $4,945,000).

    Income taxes

    OEH accounts for income taxes under the asset and liability method, which

    requires the recognition of deferred tax assets and liabilities for the

    expected future tax consequences of events that have been included in the

    financial statements.

    Deferred income taxes result from temporary differences between the

    financial reporting and tax bases of assets and liabilities. Deferred taxes are

    recorded at enacted statutory rates and are adjusted as enacted rates

    change. Classification of deferred tax assets and liabilities corresponds wit

    the classification of the underlying assets and liabilities giving rise to the

    temporary differences or the period of expected reversal, as applicable. A

    valuation allowance is established, when necessary, to reduce deferred tax

    assets to the amount that is more likely than not to be realized based on

    available evidence.

    In evaluating OEHs ability to recover deferred tax assets within the

    jurisdiction from which they arise, management considers all available

    positive and negative evidence, including scheduled reversals of deferred

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    Orient-Express Hotels Ltd.20

    Depreciation expense is computed using the straight-line method over

    the following estimated useful lives:

    Real estate assets

    Real estate assets consist primarily of inventory costs of real estate

    property developments. Expenditures directly related to non-hotel real

    estate developments, such as real estate taxes and capital improvements,

    are capitalized. Inventory costs of real estate development include

    construction costs and ancillary costs, which are expensed as real estate

    revenue is recorded. Direct selling costs, such as the costs of model

    apartments and their furnishings and semi-permanent signs, are capitalized

    within the cost of real estate assets for sale. Other costs directly associated

    with sales, such as direct sales commissions, are recorded as prepaidexpenses and charged to expense in the period in which the related

    revenue is recognized as earned. Costs that do not meet the criteria for

    capitalization, such as the salaries of sales personnel, general and

    administrative expenses of the sales office, advertising and promotions, are

    expensed as incurred. Land property development costs are accumulated

    by project and are allocated to individual residential units, principally using

    the relative sales value method.

    Impairment of long-lived assets

    OEH management evaluates the carrying value of long-lived assets for

    impairment by comparing the expected undiscounted future cash flows of

    the assets to the net book value of the assets if certain trigger events occur.

    If the expected undiscounted future cash flows are less than the net bookvalue of the assets, the excess of the net book value over the estimated fair

    value is charged to current earnings. Fair value is based upon discounted

    cash flows of the assets at a rate deemed reasonable for the type of asset

    and prevailing market conditions, sales of similar assets, appraisals and, if

    appropriate, current estimated net sales proceeds from pending offers.

    OEH evaluates the carrying value of long-lived assets based on its plans, at

    the time, for such assets and such qualitative factors as future development

    in the surrounding area, status of expected local competition and projected

    incremental income from renovations. Changes to OEHs plans, including a

    decision to dispose of or change the intended use of an asset, can have a

    material impact on the carrying value of the asset.


    Investments include equity interests in and advances to unconsolidated


    Goodwill and other intangible assets

    Goodwill is not amortized and must be evaluated at least annually to

    determine impairment. Goodwill impairment testing is performed in two

    steps, first, the determination of impairment based upon the fair value of

    each reporting unit as compared with its carrying value and, second, if

    there is an implied impairment, the measurement of the amount of the

    impairment loss is determined by comparing the implied fair value of

    goodwill with the carrying value of the goodwill. If the carrying value of the

    tax liabilities, projected future taxable income, tax planning strategies and

    recent financial operations. In the event management were to determine

    that OEH would be able to realize its deferred income tax assets in the

    future in excess of their net recorded amount, management would make an

    adjustment to the valuation allowance which would reduce the provision for

    income taxes.

    Income tax positions must meet a more-likely-than-not threshold to be

    recognized. Management recognizes tax liabilities in accordance with U.S.

    GAAP applicable to uncertain tax positions, and adjusts these liabilities

    when judgment changes as a result of the evaluation of new information not

    previously available. Due to the complexity of some of these uncertainties,

    the ultimate resolution may result in a payment that is materially differentfrom OEHs current estimate of the tax liabilities. These differences will be

    reflected as increases or decreases to income tax expense in the period in

    which they are determined. OEH recognizes interest and penalties related

    to unrecognized tax benefits within the income tax expense line in the

    accompanying consolidated statements of operations. Accrued interest

    and penalties are included within the related tax liability line in the

    consolidated balance sheets.

    Earnings per share

    Basic earnings per share exclude dilution and are computed by dividing net

    earnings/(losses) available to common shareholders by the weighted

    average number of class A and B common shares outstanding for the

    period. Diluted earnings per share reflect the increase in shares using thetreasury stock method to reflect the impact of an equivalent number of shares

    of stock if share options were exercised and share-based awards were

    converted into common shares. The number of shares used in computing

    basic and diluted earnings per share was as follows:

    For the three years ended December 31, 2010, all share options and

    share-based awards were excluded from the calculation of the dilutedweighted average number of shares because OEH incurred a net loss in all

    periods and the effect of their inclusion would be anti-dilutive. The number

    of share options and share-based awards excluded from the weighted

    average shares outstanding were as follows:

    The numbers of share options and share-based awards at December

    31, 2010 were 3,461,070 (2009 - 2,350,422; 2008 - 1,059,315).


    Inventories include food, beverages, certain operating stocks and retail

    goods. Inventories are valued at the lower of cost or market value under the

    first-in, first-out method.

    Property, plant and equipment, net

    Property, plant and equipment, net are stated at cost less accumulated

    depreciation. The cost of significant renewals and betterments is capitalized

    and depreciated, while expenditures for normal maintenance and repairs

    are expensed as incurred.

    Year ended December 31, 2010 2009 2008

    000 000 000

    Basic 91,545 68,046 43,443

    Effect of dilution - - -

    Diluted 91,545 68,046 43,443

    Year ended December 31, 2010 2009 2008

    000 000 000

    Share options 2,159,624 1,367,530 611,235

    Share-based awards 577,204 363,373 60,628

    2,736,828 1,730,903 671,863

    Descriptions Useful lives

    Buildings Up to 60 years and10% residual value

    Tourist trains Up to 75 years

    River cruise ship and canal boats 25 years

    Furniture, fixtures and equipment 5 to 25 years

    Equipment under capital lease

    and leasehold improvements Lesser of initial lease term

    or economic life

    Certain art and antiques are not depreciated.

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    Orient-Express Hotels Ltd. 2

    reporting units goodwill exceeds its implied fair value, the goodwill is

    deemed to be impaired and is written down to the extent of the difference.

    The determination of impairment incorporates various assumptions and

    uncertainties that OEH believes are reasonable and supportable

    considering all available evidence, such as the future cash flows of the

    business, future growth rates and the related discount rate. Other intangible

    assets with indefinite useful lives are also reviewed for impairment in

    accordance with ASC 350.

    Concentration of credit risk

    Due to the nature of the leisure industry, concentration of credit risk withrespect to trade receivables is limited. OEHs customer base is comprised

    of numerous customers across different geographic areas.


    OEHs primary defined benefit pension plan is accounted for using

    actuarial valuations. Net funded status is recognized on the balance sheet

    and any unrecognized prior service costs, experience gains and losses, or

    transition obligation are reported as a component of other comprehensive

    income/(loss) in shareholders equity. See Note 12.

    In determining the expected long-term rate of return on assets,

    management has reviewed anticipated future long-term performance of

    individual asset classes and the appropriate asset allocation strategy given

    the anticipated requirements of the plan to determine the average rate ofearnings expected on the funds invested. The projected returns are based

    on broad equity and bond indices, including fixed interest rate gilts (United

    Kingdom Government issued securities) of long-term duration since the

    plan operates in the U.K.

    Management reviews OEHs actual asset allocation on an annual basis

    and rebalances investments to targeted allocations when considered

    appropriate. While the analysis considers recent fund performance and

    historical returns, the assumption is primarily a long-term, prospective rate.

    Management continues to monitor and evaluate the level of pension

    contributions based on various factors that include investment

    performance, actuarial valuation and tax deductibility.

    Derivative financial instruments

    All derivative instruments are recorded on the balance sheet at fair value. If

    a derivative instrument is not designated as a hedge for accounting purposes,

    the fluctuations in the fair value of the derivative are recorded in earnings.

    If a derivative is designated as a fair value hedge, the changes in the fair

    value of the derivative and of the hedged item attributable to the hedged

    risk are recognized in earnings. If a derivative is designated as a cash flow

    hedge, the effective portions of changes in the fair value of the derivative is

    recorded in a component of accumulated other comprehensive

    income/(loss) and is recognized in the statements of consolidated

    operations when the hedged item affects earnings. The ineffective portion

    of a hedging derivatives change in the fair value will be immediately

    recognized in earnings.

    OEH management formally documents all relationships between

    hedging instruments and hedged items, as well as its risk management

    objectives and strategies for undertaking various hedge transactions. OEH

    links all hedges that are designated as fair value hedges to specific assets

    or liabilities on the balance sheet or to specific firm commitments. OEH

    links all hedges that are designated as cash flow hedges to forecasted

    transactions or to floating rate liabilities on the balance sheet. OEH

    management also assesses, both at the inception of the hedge and on an

    ongoing basis, whether the derivatives that are designated in hedging

    relationships are highly effective in offsetting changes in fair values or cash

    flows of hedged items. Should it be determined that a derivative is not

    highly effective as a hedge, OEH will discontinue hedge accounting

    prospectively and amounts held in accumulated other comprehensive

    income would be recognized within interest expense.

    OEH is exposed to interest rate risk on its floating rate debt and

    management uses derivatives to manage the impact of interest rate

    changes on earnings and cash flows. OEHs policy is to enter into interest

    rate swap and interest rate cap agreements from time to time to hedge the

    variability in interest rate cash flows on floating rate debt. These swaps

    effectively convert the floating rate interest payments on a portion of the

    outstanding debt into fixed payments.

    Hedges of net investments in foreign operations are accounted for

    similarly to cash flow hedges. Any gain or loss on the hedging instrument

    relating to the effective portion of the hedge is recorded in other

    comprehensive income/(loss) within foreign currency translationadjustment. The gain or loss relating to the ineffective portion will be

    recognized immediately in earnings within foreign currency gains and

    losses. Gains and losses deferred in other comprehensive income/(loss)

    are recognized in earnings upon disposal of the foreign operation. OEH

    links all hedges that are designated as net investment hedges to

    specifically identified net investments in foreign subsidiaries.

    Fair value measurements

    Guidance on fair value measurements and disclosures (i) applies to certain

    assets and liabilities that are being measured and reported on a fair value

    basis, (ii) defines fair value, establishes a framework for measuring fair value

    in accordance with U.S. GAAP, and expands disclosure about fair value

    measurements and (iii) enables the reader of the financial statements toassess the inputs to develop those measurements by establishing a

    hierarchy for ranking the quality and reliability of the information used to

    determine fair values.

    Guidance requires that assets and liabilities carried at fair value be

    classified and disclosed in one of three categories, namely quoted market

    prices in active markets for identical assets or liabilities (Level 1), observable

    market-based inputs or unobservable inputs that are corroborated by marke

    data (Level 2), and unobservable inputs that are not corroborated by market

    data (Level 3).

    OEH reviews its fair value hierarchy classifications quarterly. Changes in

    significant observable valuation inputs identified during these reviews may

    trigger reclassification of fair value hierarchy levels of financial assets and

    liabilities. These reclassifications are reported as transfers in Level 3 at their

    fair values at the beginning of the period in which the change occurs and as

    transfers out at their fair values at the end of the period.

    The fair value of OEHs derivative financial instruments is computed

    based on an income approach using appropriate valuation techniques

    including discounting future cash flows and other methods that are

    consistent with accepted economic methodologies for pricing financial

    instruments. Where credit value adjustments exceeded 20% of the fair value

    of the derivatives, Level 3 inputs are assumed to have a significant impact

    on the fair value of the derivatives in their entirety and the valuation has been

    included in the Level 3 category.

    Recent accounting pronouncements

    In January 2010, the FASB issued an amendment to the accounting for fair

    value measurements and disclosures requiring a gross presentation of

    changes within Level 3 valuations period to period as a rollforward, and

    adding a new requirement to disclose transfers in and out of Level 1 and

    Level 2 measurements. The new disclosures apply to all entities that report

    recurring and nonrecurring fair value measurements. This amendment is

    effective in the first interim reporting period beginning after December 15,

    2009, with an exception for the gross presentation of Level 3 rollforward

    information, which is required for annual reporting periods beginning after

    December 15, 2010, and for interim reporting periods within those years.

    The Companys adoption of the provisions of this amendment during the

    quarter ended March 31, 2010 did not have a material impact on the

    Companys financial statement disclosures.

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    2. Discontinued operations

    (a) Lilianfels Blue Mountains

    On January 29, 2010, OEH completed the sale of the property and

    operations of Lilianfels Blue Mountains in Katoomba, Australia for a cash

    consideration of $18,667,000. The hotel was a part of OEHs hotels and

    restaurants segment. The disposal resulted in a gain of $7,183,000

    (including a $7,292,000 transfer of foreign currency translation gain from

    other comprehensive income) which is reported within earnings/(losses)

    from discontinued operations, net of tax.

    The following is a summary of the net assets sold and gain on sale:

    Results of discontinued operations of Lilianfels Blue Mountains are

    as follows:

    In the year ended December 31, 2009, OEH identified a non-cash property,

    plant and equipment impairment charge of $9,809,000 in respect of Lilianfels

    Blue Mountains. The carrying value of the assets was written down to the fair

    value based on managements best estimate. In addition, an impairment of

    goodwill of $548,000 was recognized in the first quarter of 2009.

    (b) La Cabana

    On May 25, 2010, OEH completed the sale of the restaurant La Cabana in

    Buenos Aires, Argentina for cash consideration of $2,712,000. The restaurant

    was a part of OEHs hotels and restaurants segment. The disposal resulted ina loss on sale of $460,000 (including a $294,000 transfer of foreign currency

    gain from other comprehensive income) which is reported within earnings/

    (losses) from discontinued operations, net of tax. The assets of La Cabana

    were sold in December 2009 and the shares in the restaurant-owning

    company in May 2010.

    Year ended December 31, 2010 2010 2009 2008

    $000 $000 $000

    Revenue 856 9,555 9,659

    (Losses)/earnings before tax

    and gain on sale (132) 246 (270)

    Gain on sale/(impairment) 7,183 (10,357) -

    Earnings/(losses) before tax 7,051 (10,111) (270)

    Tax provision - 1,847 (201)Net earnings/(losses)

    from discontinued operations 7,051 (8,264) (471)

    Orient-Express Hotels Ltd.22

    In June 2009, the FASB issued authoritative guidance that amends the

    evaluation criteria to identify the primary beneficiary of a variable interest

    entity (VIE) and requires ongoing assessment of whether a reporting entity

    is the primary beneficiary of the variable interest entity. The determination of

    whether a reporting entity is required to consolidate another entity is based

    on, among other things, the other entitys purpose and design and the

    reporting entitys ability to direct the activities that most significantly impact

    the other entitys economic performance. The Company adopted the

    provisions of this guidance during the quarter ended March 31, 2010. There

    was no impact on the Companys consolidated results of operations and

    financial position, other than the modification of certain disclosures related

    to the Companys involvement in variable interest entities.In June 2009, the FASB issued an amendment to the accounting and

    disclosure requirements for transfers of financial assets, modifying the

    derecognition guidance and eliminating the exemption from consolidation

    for qualifying special-purpose entities. The Company adopted the

    provisions of the amendment during the quarter ended March 31, 2010,

    and there was no impact on the Companys consolidated results of

    operations and financial position.

    The Company is considering the guidance issued by the FASB in

    October 2009 that amends the accounting for revenue recognition on

    multiple-deliverable revenue arrangements. Specifically, the guidance

    addresses the unit of accounting for arrangements involving multiple

    deliverables. It also addresses how arrangement consideration should be

    allocated to the separate units of accounting, when applicable. The

    adoption of the provisions of this amendment is required for fiscal yearsbeginning on or after June 15, 2010, and is not expected to have a material

    impact on the Companys financial statements.

    In December 2010, the FASB issued guidance concerning the

    performance of the second step of goodwill impairment testing, namely

    measurement of the amount of an impairment loss. The ASU amends the

    criteria for performing the second step for reporting units with zero or

    negative carrying amounts and requires performing the second step if

    qualitative factors indicate that it is more likely than not that a goodwill

    impairment exists. OEH will adopt ASU 2010-28 for impairment tests

    performed in periods beginning after December 15, 2010, and OEH is

    currently evaluating the impact of this adoption of the ASU on its

    consolidated financial statements.

    January 29, 2010 $000

    Property, plant and equipment, net 18,582

    Net working capital surplus 66

    Other assets 158

    Deferred income taxes (730)

    Net assets 18,076

    Transfer of foreign currency translation gain (7,292)



    Cash 18,667

    Less: costs to sell (700)


    Gain on sale 7,183

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    The following is a summary of the net assets sold and loss on sale:

    Results of discontinued operations of La Cabana are as follows:

    An impairment loss of $5,368,000 was recognized for La Cabana tangible

    assets in the year ended December 31, 2009, to reflect the level of offers

    being received on the restaurant.

    (c) Lapa Palace Hotel

    On June 2, 2009, OEH sold the shares in its Lapa Palace Hotel subsidiary

    in Lisbon, Portugal for $41,983,000. The hotel was a part of OEHs hotels

    and restaurants segment. Of the sale price, $26,287,000 was received in

    cash on the date of sale and the remaining amount was received in 2010.

    The disposal resulted in a gain on sale of $4,826,000 (including a $6,719,000

    transfer of foreign currency gain from other comprehensive income/(loss))

    which is reported within losses from discontinued operations, net of tax.

    The following is a summary of the net assets sold and gain on sale:

    Orient-Express Hotels Ltd. 23

    May 25, 2010 $000

    Property, plant and equipment, net 2,985

    Net working capital surplus 170

    Other assets 43

    Net assets 3,198

    Transfer of foreign currency translation gain (294)



    Cash 2,712

    Less: costs to sell (268)


    Loss on sale (460)

    June 2, 2009 $000

    Cash 1,303

    Property, plant and equipment, net 43,333

    Net working capital deficit (281)

    Loans (715)

    Deferred income tax (965)

    Net assets 42,675

    Reversal of foreign currency translation gain (6,719)



    Cash 26,287

    Deferred, discounted to present value 15,394Less: costs to sell (899)


    Gain on sale 4,826

    Year ended December 31, 2010 2009 2008

    $000 $000 $000

    Revenue - 16,963 23,904

    Losses before tax and loss on sale (1,699) (25,597) (7,052

    Loss on sale - (1,089) -

    Losses before tax (1,699) (26,686) (7,052

    Tax benefit - 6,114 2,302

    Net losses from

    discontinued operations (1,699) (20,572) (4,750

    Year ended December 31, 2010 2009 2008

    $000 $000 $000

    Revenue - 1,143 1,834

    Losses before tax and gain on sale - (627) (800)

    Loss on sale/impairment (460) (5,368) -

    Losses before tax (460) (5,995) (800)

    Tax provision - - -

    Net losses from discontinued operations (460) (5,995) (800)

    Results of discontinued operations of the Lapa Palace Hotel are as

    follows, with 2010 earnings relating to interest income:

    (d)Windsor Court Hotel

    On October 2, 2009, OEH sold the net assets of Windsor Court Hotel in

    New Orleans, Louisiana for a cash consideration of $44,250,000. The hotel

    was a part of OEHs hotels and restaurants segment. The disposal resulted

    in a loss on sale of $1,089,000 which is reported within earnings/(losses)

    from discontinued operations, net of tax.

    The following is a summary of the net assets sold and loss on sale

    recorded in 2009:

    Results of discontinued operations of Windsor Court Hotel are as follows

    In 2010, a loss of $1,699,000 at Windsor Court Hotel was recorded

    following settlement of an insurance claim for $500,000, resultingin a write-off of costs above that amount.

    (e) Assets held for sale: Bora Bora Lagoon Resort, Htel de la Cit,

    and O.E. Interactive/

    As previously reported, OEH is selling its investment in Bora Bora Lagoon

    Resort. The property sustained damage as a result of a cyclone in February

    2010 and is currently closed. The property continues to be actively marketed

    and is saleable in its current condition as land for future development. OEH

    engaged additional selling agents who are appropriately incentivized to sell

    the property within one year, which OEH expects to achieve, and is currently

    in discussions with interested parties.

    October 2, 2009 $000

    Property, plant and equipment, net 43,040

    Net working capital surplus 928

    Deferred costs 459

    Net assets 44,427


    Cash 44,250

    Less: working capital adjustment (266

    Less: costs to sell (646


    Loss on sale 1,089

    Year ended December 31, 2010 2009 2008

    $000 $000 $000

    Revenue - 2,860 12,457

    Earnings/(losses) before

    tax and gain on sale 280 (827) 64

    Gain on sale/impairment - 4,826 (1,028

    Earnings/(losses) before tax 280 3,999 (964

    Tax provision - - (711

    Net earnings/(losses) from

    discontinued operations 280 3,999 (1,675

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    3. Variable interest entities

    In accordance with the guidance for the consolidation of a VIE, OEH analyzes

    its variable interests, including loans, guarantees and equity investments,

    to determine if an entity is a VIE. OEHs analysis includes both quantitative

    and qualitative considerations. OEH bases its quantitative analysis on the

    forecast cash flows of the entity, and its qualitative analysis on a review of

    the design of the entity, organizational structure including decision-making

    ability, and relevant financial agreements. OEH also uses its qualitative

    analysis to determine if OEH is the primary beneficiary of the VIE.

    Charleston Place Hotel

    OEH holds a 19.9% equity investment in Charleston Center LLC, owner of

    Charleston Place Hotel. OEH has also made a number of loans to the hotel.

    On evaluating its various variable interests in the hotel, OEH concluded that

    effective December 31, 2008, the hotel no longer qualified for certain scope

    exemptions under ASC 810-10 because OEHs share of loans provided to

    the hotel had increased and OEH provides a majority of subordinated

    financial support. OEH further concluded that it is the primary beneficiary of

    this VIE as defined in ASC 810-10 because OEH is expected to absorb a

    majority of the entitys residual gains or losses based on the current

    organizational structure. OEH has consolidated the VIE effective December

    31, 2008. The results of the operation of Charleston Place Hotel were included

    in the consolidated financial statements of OEH from January 1, 2009 andtherefore any intercompany transactions were eliminated from that date.

    These conclusions have not changed as a result of subsequently issued

    accounting guidance of the FASB which requires an assessment of OEHs

    ability to direct the activities that most significantly impact the VIEs

    economic performance.

    The carrying amounts of consolidated assets and liabilities of Charleston

    Center LLC included within OEHs consolidated balance sheets as of

    December 31, 2010 and 2009 are summarized as follows:

    Orient-Express Hotels Ltd.24

    Year ended December 31, 2010 2009

    $000 $000

    Current assets 4,565 6,683

    Other assets 1,029 2,164

    Property, plant and equipment, net of depreciation 28,351 55,511

    Total assets held for sale 33,945 64,358

    Liabilities held for sale (2,910) (14,646)

    Year ended December 31, 2010 2009

    $000 $000

    Current assets 5,897 5,027

    Property, plant and equipment 188,502 192,682

    Goodwill 40,395 40,395Other assets 2,823 1,612

    Total assets 237,617 239,716

    Current liabilities (17,827) (17,940)

    Third-party debt, including

    $1,775 and $165 current portion (92,304) (79,469)

    Deferred income taxes (61,835) (64,100)

    Total liabilities (171,966) (161,509)

    Net assets (before amounts payable

    to OEH of $94,141 and $107,362) 65,651 78,207

    In November 2010, OEH decided to sell Htel de la Cit in Carcassonne,

    France which is included in the hotels and restaurants segment. OEH is

    currently in negotiation to complete the sale of this hotel.

    In December 2010, OEH decided to sell its Internet-based companies

    O.E. Interactive Ltd. and UK Ltd. which are included in the

    trains and cruises segment. These companies became held for sale based

    on an offer from a third party to purchase them. This sale is expected to be

    completed in the first half of 2011.

    The hotels and Internet-based companies have been classified as held

    for sale and their results have been presented as discontinued operations

    for all periods presented.

    Summarized operating results of the hotels and Internet-basedcompanies held for sale are as follows:

    In the year ended December 31, 2010, OEH settled outstanding claims

    with its insurance carrier regarding damages sustained at Bora BoraLagoon Resort and has recorded an insurance gain of $5,750,000 in the

    year. This gain was offset by restructuring and inventory impairment

    charges. The restructuring charges included a restructuring provision of

    $2,187,000 for an employee severance scheme completed in 2010. OEH

    also recorded an impairment of $459,000 due to obsolete inventory.

    In the year ended December 31, 2009, impairment losses were

    recognized for Bora Bora Lagoon Resort tangible assets of $16,510,000 to

    reflect the level of offers being received for the purchase of the hotel.

    In the year ended December 31, 2010, OEH identified and recorded a

    non-cash property, plant and equipment impairment charge of $5,989,000

    in respect of Htel de la Cit. The carrying values of the assets were written

    down to the fair value to reflect the level of offers received on the hotel and

    the price at which OEH is currently negotiating a sale completion.

    In the year ended December 31, 2010, OEH identified and recorded a

    non-cash intangible asset impairment charge of $1,070,000 in respect of

    the two Internet-based businesses. The carrying values of the intangible

    assets were written down to reflect the level of offers being received.

    Assets and liabilities of the hotels and Internet-based companies that

    have been classified as held for sale consisted of the following:

    Prior year comparatives include balances of Windsor Court Hotel which

    was sold in October 2009: $2,034,000 of current assets, $9,000 of other

    assets and $202,000 of liabilities. Prior year comparatives also include

    balances of Lilianfels Blue Mountains which was sold in January 2010:

    $1,293,000 of current assets, $109,000 of other assets, $18,916,000 of fixed

    assets and $8,152,000 of liabilities. In addition, prior year comparatives

    include liabilities of $157,000 relating to Lapa Palace Hotel which was sold

    in June 2009.

    Year ended December 31, 2010 2009 2008

    $000 $000 $000

    Revenue 6,729 13,124 16,561

    Losses before tax and impairment (633) (3,314) (5,492)

    Impairment loss/other (5,754) (16,510) (12,556)

    Losses before tax (6,387) (19,824) (18,048)

    Tax benefit/(provision) 1,684 2,043 (7,010)

    Net losses from

    discontinued operations (4,703) (17,781) (25,058)

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    4,000,000 ($5,651,000) (determ